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Friday, July 21, 2017

1. I have a new policy brief at the Mercatus Center that makes the case for a Nominal GDP level target from the knowledge problem perspective. It is a non-technical paper meant to be accessible by policy makers and lay people. It echoes some of the more technical arguments made in this paper by Josh Hendrickson and myself.

3. Scott Sumner pushes back against all the macro moralists waving their finger at Germany for running current account surpluses. He argues it is mistaken to blame Germany's current account surplus for dragging down global demand growth.

4. Is any part of potential GDP endogenous to the level of aggregate nominal demand? This is a question we have looked at before on this blog. A new paper reexamines this issue and concludes the answer is yes. Below are the key figures from the paper. The first one shows the standard CBO potential GDP estimates over time against a new estimate. Matthew Klein reports on the paper.

Does the U.S. economy need more inflation? A group of 22 progressive economists has written a letter to the Federal Reserve urging it to appoint a blue-ribbon commission to study whether the central bank should raise its target for inflation above its current 2 percent. Fed chairman Janet Yellen, in her press conference following the latest interest-rate increase, called it “one of the most important questions” facing the organization. The economists’ advice shouldn’t be rejected out of hand, but it should be rejected. They make some valid points in their diagnosis of the ills of the current monetary regime. But the Fed can and should address these problems without raising inflation...

These arguments for a higher inflation target are reasonably strong if you accept the premise that keeping inflation stable should be the Fed’s principal task in the first place. There is, however, a superior alternative. That alternative would stabilize the growth of nominal spending: the total amount of dollars spent throughout the economy...

This policy would capture the benefits of inflation targeting...A key difference between the two policies is that a nominal-spending target would allow inflation to fluctuate over the short term in response to movements in productivity.